A settlement agreement (formerly called a compromise agreement) is a legally binding contract between you and your employer. In exchange for a financial payment, you agree to waive your right to bring employment claims against them. This guide explains every key clause in plain English.
Settlement agreements are common in redundancy situations where your employer wants certainty that you will not later claim unfair dismissal or discrimination at an Employment Tribunal. They are entirely voluntary — you cannot be forced to sign one. For the agreement to be legally valid, you must receive independent legal advice from a qualified solicitor or trade union representative, and your employer must pay a contribution towards that legal fee (typically £250–£500).
Full and Final Settlement: You cannot bring any future claims against your employer related to your employment.
Waiver of Claims: A list of specific laws — such as the Equality Act 2010 and the Employment Rights Act 1996 — under which you are giving up the right to sue.
Confidentiality / NDA: You cannot tell people about the agreement, the payout amount, or the circumstances of your leaving. Ask whether this can be mutual.
Non-Disparagement: You promise not to say damaging things about the company. Always ask for this to be mutual.
Reference Clause: The exact wording of the reference your employer agrees to provide. This is one of the most valuable things to negotiate.
Tax Indemnity: If HMRC decides more tax is owed on your payment, you are liable — not your employer. Seek advice on this clause.
Return of Property: When and how you must return your laptop, phone, and keys. The handover terms can often be negotiated.
Despite what HR may imply, almost everything in a settlement agreement is negotiable. You can push for a higher financial payment, an agreed reference, a longer handover period, the right to keep company equipment, and an announcement wording that suits your narrative for future employers. Our negotiation guide provides proven tactics and email templates you can use today.
Do not sign under pressure or immediately. You typically have at least 10 calendar days to consider an offer. Use that time to get independent legal advice. If the terms are unfair, a solicitor can negotiate on your behalf — often significantly increasing the final payout at no extra cost to you.